Originally created 05/26/05

Durable goods orders and new home sales climb in April



WASHINGTON - Orders to U.S. factories for big-ticket manufactured goods rose a solid 1.9 percent last month, the best showing since November. Sales of new homes hit an all-time high.

The reports provided further evidence that the economy has recovered from its March slowdown.

The Commerce Department said the increase for durable goods was propelled by strong demand for transportation equipment, especially airplanes, which helped push the overall number up by $3.71 billion to a seasonally adjusted $200.3 billion. Excluding transportation, orders would have edged down a slight 0.2 percent.

In a second report, the Commerce Department said sales of new homes, which were already at a record level in March, inched even higher in April, rising 0.2 percent to a new record annual rate of 1.316 million units. The median price of a new home jumped 6.1 percent to a new all-time high of $230,800.

Economists said the strength in both reports showed that worries of a serious slowdown from this year's oil shock were overblown.

"In March we had a combination of bad weather and bad seasonal adjustment problems which made that month look too weak," said David Wyss, chief economist at Standard & Poor's in New York.

He said based on the data so far, economic growth for the first three months of the year will probably be revised up in a government report Thursday to around 3.5 percent, compared with the originally reported 3.1 percent growth. Wyss said based on the strength already seen in April, he will increase his estimate for second quarter growth as well.

"It looks like we will get around 3.5 percent growth for the first half of this year, which is pretty darn good," he said.

The strong report on new home sales followed a report Tuesday showing that sales of existing homes shot up 4.5 percent in April to an all-time high annual rate of 7.18 million units. The median price of an existing home sold last month hit a record as well of $206,000, up 15.1 percent from a year ago, the biggest price jump in nearly a quarter century.

The big increase in prices of both new and existing homes has raised worries among some economists that the housing industry could be in the grips of the same type of speculative fever that pushed Internet stock prices up to dizzying heights in the last decade, only to see them come crashing back to earth when the bubble burst in early 2000.

In a speech last week, Federal Reserve Chairman Alan Greenspan said he did not believe there was a national housing bubble similar to that stock market bubble, but he said there were a "lot of local bubbles."

Michael Carliner, senior economist at the National Association of Home Builders, said bubble was the wrong metaphor for the housing industry. He said prices wouldn't suddenly pop one day. He said in past periods when there were sharp increases in prices, some local areas have seen price increases slow and even stagnate for a prolonged period.

But Carliner predicted that with mortgage rates remaining at lower-than-expected levels this year, 2005 could see the fifth straight year for record sales of both new and existing homes.

The strength in new home sales last month was led by a 37.2 percent surge in the Northeast, which pushed the sales rate to 107,000 homes, the strongest pace since January 1997. Sales were up 2.8 percent in the Midwest to an annual rate of 368,000 units.

However, sales fell by 5.3 percent in the South to an annual rate of 630,000 units and were down 0.5 percent in the Midwest to an annual rate of 211,000 units.

The 1.9 percent jump in durable goods orders, the largest advance since a 2 percent increase last November, followed three straight monthly declines including a sharp 1.6 percent drop in March.

Leading the April advance was an 8.2 percent surge in orders for transportation equipment, the biggest increase since last November. Demand for motor vehicles and parts rose by 3.4 percent while orders for commercial aircraft were up 28.2 percent and demand for military aircraft rose by 26.3 percent.

Orders for non-defense capital goods, viewed as an indicator of business plans to expand and modernize, rose by 3.8 percent in April, the best showing since a 7.7 percent surge last November.

Orders for business capital goods had been weak in the first three months of this year, reflecting the expiration at the end of last year of popular tax deductions that were designed to encourage sales of business equipment as the country struggled to emerge from the 2001 recession.

On the Net:

Commerce Department: http://www.commerce.gov